Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Sanderson Farms, Inc. (SAFM - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Sanderson Farms has a trailing twelve months PE ratio of 11.31, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at 19.87. If we focus on the stock’s long-term PE trend, the current level puts Sanderson Farms’ current PE ratio almost on par with its midpoint over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.
Further, the stock’s PE also compares favorably with its industry’s trailing twelve months PE ratio, which stands at 14.91. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Sanderson Farms has a forward PE ratio (price relative to this year’s earnings) of 12.20, so it is fair to expect a slight increase in the company’s share price in the near future.
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Sanderson Farms has a P/S ratio of about 0.98. This is significantly lower than the S&P 500 average, which comes in at 3.11 right now.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Sanderson Farms currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes SAFM a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/CF ratio (another great indicator of value) comes in at 8.16, which is better than the industry average of 10.61. Clearly, SAFM is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Sanderson Farms might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘A’. This gives Sanderson Farms a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter and year has seen one estimates go higher in the past sixty days, compared to none lower.
This has had a positive impact on the consensus estimate, as the current quarter consensus estimate has jumped 37.3% in the past two months, while the full year estimate has increased about 14%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Sanderson Farms, Inc. Price and Consensus
This bullish trend is why the stock boasts a Zacks Rank #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.
Sanderson Farms is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (bottom 8% out of more than 250 industries) it is hard to get too excited about this company overall. In fact, over the past one year, its industry has clearly underperformed the broader market, as you can see below:
Despite positive estimate revision activity, investors should wait for industry trends to turn around first. When it does, this stock could be a compelling value pick.
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